So why the constrained short term outlook which is reflected in
a national forecast for a flat year for housing starts in 2013?
There are three key aspects to the historically low national level
of housing starts evident in 2011, 2012 and that is forecast to
persist in 2013.
Firstly, there is less demand for new housing due to the cautious
mindset of households and household finances provide a good
demonstration of this. There are fewer new housing loans being
written and of those being written, the average loan size has
been declining (in real terms), while on the other side of the
equation households with mortgages are focusing on paying
down mortgage debt.
Secondly, there is the credit crunch, which reflects the considerably
lower appetite Australia’s banks have for lending to housing.
This credit crunch comes in two parts:
• There are a significant number of new home building clients
who gain pre-finance approval but then fail to obtain final
loan approval from their bank and are therefore unable
to proceed to build a home. Demand for new housing is
therefore not as weak as an aggregate analysis would
suggest – lack of available finance is preventing the
realisation of some potential demand.
• Credit conditions applying to residential developments
are very tight and have indeed got tighter over the last
12 months. Many commercially viable projects are either
not receiving finance or are being rendered unviable by
untenable lending criteria which are inconsistent with the
structure of the business realities of residential construction.
Thirdly, the cost base (i.e. taxation and regulation) of the new
home building sector is disproportionately high as well as being
widely inefficient and inequitable. With the exception of some
modest state initiatives there are no longer short term stimulus
measures in place to assist in overcoming this high cost base.
More significantly, the appetite for policy reform to reduce the
high cost base is low to non-existent across Australian Governments.
Furthermore, the problematic tax bias against new housing has
been exacerbated in recent years due to easing existing property
prices. In other words for many buyers the sums don’t add up
when comparing new housing to existing property.
New housing is a sector of the Australian economy in dire need
of considerable reform, as clearly evidenced by the results from
the three reports the HIA has commissioned from the Centre for
International Economics regarding the taxation of housing and
the importance of housing to the wider economy.
Economic reform, be it micro or macro in nature, generally
requires bold and decisive policy strategy, development and
action. Consequently such reform is inevitably controversial
and usually a ‘hard sell’ for Governments in the early stages
of proposed and actual change. Contemporary Australian
politicians by and large lack the appetite for such decisive
policy plans and actions. Let’s hope that changes soon.
22 www.awa.org.au Winter 2013